Your skills may lie in the kitchen on the hospitality side rather than sitting looking at a spreadsheet, but no business can operate without proper accounting practices. That’s especially true in the restaurant industry which operates on such fine margins between success and failure.
What accounts does a restaurant need to keep?
There’s a slight difference between what’s legally required, and what you should track for the sake of your business. If you have yet to open your doors, this may seem like something you can think about later on, but it’s never too early to implement good restaurant accounting processes.
As a company, filing annual reports and company tax returns is a necessity and you need to submit physical or digital accounts that cover:
Money received and spent
This is self-explanatory, but it can’t be stressed enough how important it is to keep track of every dollar that goes in and out of the business.
These should be assessed for their current value rather than what you purchased them for. Even if you temporarily acquired an item, there needs to be a record of all goods bought and sold within a financial period.
Debts owed or owing
There’s a constant fluctuation in the restaurant trade and these would cover the various supplier credits or equipment lease agreements you have in place.
Most restaurants have a rapid turnover of stock, but at the time of submitting accounts you will have a fridge and freezer full of ingredients. Evidence of how the stock figure was calculated needs to be produced.
Often this data will be on hand if you keep a profit and loss statement (P&L). If you get into the habit of good bookkeeping, including logging your sales, costs to produce those sales, labor costs, and fixed costs such as rent and utilities every day, it’s far easier when it comes to the end of the year.
Choosing the right POS system will help, but you can’t solely rely on technology.
Know where money needs to be spent
However, you’ve decided to fund your first restaurant, it’s a scary thought to consider that on average first-time restaurateurs go over budget by 33%. That’s why it is essential to understand the areas which are actually worth investing in, and where a few cutbacks and affordable options may make sense.
Bootstrapping is a great approach and a mindset that most entrepreneurs need to adopt at some point, but it can only take you so far.
For every equipment purchase over a minimal amount, for instance, you need to assess the value of buying versus leasing. There are pros and cons to each, including warranty agreements and ongoing maintenance. If in doubt, speak to other restaurant owners about how their equipment has been acquired and what they’d change if they were starting again.
Managing cash flow issues
Even the most well-funded restaurants will occasionally run into issues with cash flow. The trick to success is anticipating these issues before they arise, and putting in good restaurant accounting processes to ensure you can ride any temporary dips in the bank balance.
Use cash flow forecasts
A widely used accounting method that lets you understand what and when money is likely to come into your account.
Keep credit lines low
Sometimes credit is unavoidable, but you should never get into a situation where paying back debt is a significant overhead.
Keep your costs lean
Consider that every item on your menu means carrying more stock, and that each full-time employee comes with an associated cost, even when you’re not busy.
Be aware of your surroundings
Customer behavior can be affected by anything from the weather to the economy. Understand how the wider world affects your day-to-day cash flow.
If all this makes you want to bury your head in the sand, you should look to employ an accountant to help guide you through the best way to manage your restaurant finances. They could be as valuable as your head chef when it comes to making a success of your business.
Generally Accepted Accounting Practices (GAAP)
Understand the accounting standards that you should be following.
Choosing the Right Restaurant Technology
Guiding you through systems that can make or break your profit.
What’s Eating Into Your Restaurant’s Profit
Find out how to improve your cash flow.
Rewards Network® does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.